Problem 7-26A Completing a Master Budget [LO2, LO4, LO7, LO8, LO9, LO10]

Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.

a.	As of March 31 (the end of the prior quarter), the companys balance sheet showed the following account balances:

Cash	$	12,000
Accounts receivable		49,600
Inventory		14,760
Buildings and equipment (net)		222,000
Accounts payable			$	20,400
Capital stock				110,000
Retained earnings				167,960
	$	298,360	$	298,360

b.	Actual sales for March and budgeted sales for AprilJuly are as follows:

March (actual)	$62,000
April	$82,000
May	$92,000
June	$97,000
July	$52,000

c.	Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following the sale. The accounts receivable at March 31 are a result of March credit sales.
d.	The companys gross margin percentage is 40% of sales. (In other words, cost of goods sold is 60% of sales.)
e.	Monthly selling and administrative expenses are budgeted as follows: salaries and wages, $9,500 per month; shipping, 5% of sales; advertising, $6,200 per month; other expenses, 4% of sales. Depreciation, including depreciation on new assets acquired during the quarter, will be $6,000 for the quarter.
f.	Each months ending inventory should equal 30% of the following months cost of goods sold.
g.	Half of a months inventory purchases are paid for in the month of purchase and half in the following month.
h.	Equipment purchases during the quarter will be as follows: April, $12,500; and May, $6,000.
i.	Dividends totaling $3,500 will be declared and paid in June.
j.	Management wants to maintain a minimum cash balance of $8,000. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:
Using the data above, complete the following statements and schedules for the second quarter:
1.	Schedule of expected cash collections:

Schedule of expected cash collections
	April	May	June	Total
Cash sales	$ 16,400	$	$	$
Credit sales	49,600
Total collections	$ 66,000	$	$	$

2a.	Merchandise purchases budget. (Input all amounts as positive values.)

Merchandise purchases budget
	April		May	June	Total
Budgeted cost of goods sold	$ 49,200		$ 55,200	$	$
(Click to select)DeductAdd: desired ending inventory	16,560
Total needs	65,760
(Click to select)DeductAdd: beginning inventory	14,760
Required purchases	$ 51,000		$	$	$

2b.	Schedule of expected cash disbursements for merchandise purchases: (Leave no cells blank - be certain to enter "0" wherever required.)

Schedule of cash disbursements for purchases
	April	May	June	Total
For March purchases	$ 20,400	$	$	$ 20,400
For April purchases	25,500	25,500		51,000
For May purchases
For June purchases
Total cash disbursements for purchases	$ 45,900	$	$	$

3.	Schedule of expected cash disbursements for selling and administrative expenses:

Schedule of cash disbursements for selling and administrative expenses
	April	May	June	Total
Salaries and wages	$ 9,500	$	$	$
Shipping	4,100
Advertising	6,200
Other expenses	3,280
Total cash disbursements for selling and administrative expenses	$23,080	$	$	$

4.

Cash budget. (Input all amounts as positive values except cash deficiency, repayments and interest which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Total Financing should be indicated with a minus sign when the company is repaying amounts that were previously borrowed.)

Nordic Company
Cash budget
	April	May	June	Total
Cash balance, beginning	$ 12,000	$	$	$
Add cash collections	66,000
Total cash available	78,000
Less cash disbursements:
For inventory purchases	45,900
For selling and administrative expenses	23,080
For equipment purchases	12,500
For dividends
Total cash disbursements	81,480
Excess (deficiency) of cash	(3,480)
Financing:
Borrowings
Repayments
Interest
Total financing
Cash balance, ending	$	$	$	$

5.	Prepare an absorption costing income statement for the quarter ending June 30. (Input all amounts as positive values.)

Nordic Company Income Statement For the Quarter Ended June 30
(Click to select)Gross marginEnding inventorySalesGoods available for saleNet operating income (loss)Beginning inventoryDepreciationAdvertising		$
Cost of goods sold:
(Click to select)Beginning inventoryAdvertisingSalesGross marginEnding inventoryGoods available for saleNet operating income (loss)Depreciation	$
(Click to select)Gross marginNet operating income (loss)Ending inventoryNet income (loss)PurchasesGoods available for salesSalesDepreciation
(Click to select)Net income (loss)Beginning inventoryPurchasesGoods available for saleGross marginDepreciationNet operating income (loss)Advertising
(Click to select)AdvertisingGross marginEnding inventoryBeginning inventoryDepreciationPurchasesSalesNet operating income (loss)
(Click to select)SalesGross marginBeginning inventoryEnding inventoryGoods available for saleAdvertisingNet operating income (loss)Net income (loss)
Selling and administrative expenses:
(Click to select)DepreciationOther expensesSalaries and wagesGross marginNet operating income (loss)Goods available for saleShippingAdvertising
(Click to select)Salaries and wagesGoods available for saleAdvertisingDepreciationGross marginShippingOther expensesNet operating income (loss)
(Click to select)Gross marginNet operating income (loss)Salaries and wagesDepreciationShippingGoods available for saleAdvertisingOther expenses
(Click to select)AdvertisingSalaries and wagesDepreciationGross marginOther expensesNet operating income (loss)Goods available for saleShipping
(Click to select)Net operating income (loss)Other expensesDepreciationShippingAdvertisingSalaries and wagesGoods available for saleGross margin
(Click to select)AdvertisingPurchasesEnding inventoryNet operating income (loss)SalesGoods available for saleBeginning inventoryGross margin
(Click to select)Net operating income (loss)SalesEnding inventoryCost of goods manufacturedInterest expenseAdvertisingGross marginBeginning inventory
(Click to select)SalesGoods available for saleAdvertisingPurchasesBeginning inventoryEnding inventoryNet income (loss)Gross margin		$

6.	Prepare a balance sheet as of June 30. (Be sure to list the assets and liabilities in order of their liquidity.)

Nordic Company Balance Sheet June 30
Assets
Current assets:
(Click to select)CashBuildings and equipment, netAccounts receivableAccounts payableInventory		$
(Click to select)InventoryAccounts receivableBuildings and equipment, netCashAccounts payable
(Click to select)CashAccounts receivableInventoryAccounts payableBuildings and equipment, net
Total current assets
(Click to select)CashInventoryAccounts payableBuildings and equipment, netAccounts receivable
Total assets		$
Liabilities and Stockholders Equity
Current liabilities:
(Click to select)Capital stockBank loan payableCashAccounts payableAccounts receivable		$
Stockholders' equity:
(Click to select)InventoryAccounts receivableCapital stockAccounts payableCash	$
(Click to select)Accounts receivableInventoryRetained earningsAccounts payableCash
Total liabilities and stockholders equity		$